Improve the Profitability of New Energy Projects by Creating Demand on Demand

To power the energy transition and make it a reality, one thing is clear: Renewable energy storage is a vital piece of the puzzle. However, battery storage will only be enough to smooth out daily or weekly electricity generation patterns. Generating enough carbon-free power to support the economy during seasons of the year with less wind and sunlight will require different solutions.

 

Did you know that as much as 1,600 GW of storage could be available by 2050, according to a 2021 report by the US Department of Energy's Solar Futures Study? That's a staggering amount, especially considering that currently only 4% of US electricity comes from solar. However, achieving this level of storage will require overcoming several significant barriers. First, we need to strengthen the battery supply chains and reduce reliance on other countries for key materials. Second, we need to connect batteries to the power system faster, as current grid interconnection rules and infrastructure are causing massive backlogs. And third, we need to redesign energy markets to enable more storage and renewables.

 

It's no small task, but it's critical if we're going to meet our ambitious climate goals. And to make all of this viable, we will need to improve the profitability of new energy projects to keep the innovation of the energy transition progressing.

 

Adapting to the Challenges of Renewable Energy

 

As the world increasingly turns to renewable energy sources such as wind and solar, the variable and intermittent nature of their production has become a driving force behind the next wave of innovation for energy-based companies. The traditional centralized grid was designed for predictability, where utilities could accurately forecast energy demand and ensure a balanced supply. However, with the rise of distributed energy resources (DERs) such as solar panels and wind turbines, the grid becomes less predictable and more volatile when it relies entirely on the direct output of energy from DERs without any intermediary steps in between, such as renewable energy storage systems.

 

Unlike hydrocarbon-based sources, which can increase supply by burning more fuel during times of high demand, wind and solar generation is based on environmental conditions (i.e. the amount of wind or sun at a particular location). This means that unexpected surges in demand cannot be met by increasing output.

Battery storage is being deployed as part of the solution. The aim? Having enough renewable energy storage to smooth out daily energy needs during times of low generation, such as unexpected cloud cover, or darker skies in the late afternoon and evening.

 

In order to have a sufficient supply of carbon-free electricity year-round, however, analysts propose that oversupply and curtailment (not sending all electricity generated to the grid) during plentiful months will be needed to cover seasons of the year with less favorable generation conditions. Furthermore, the lack of dispatchability of renewable energy sources, with our current grid, means that energy markets need to adapt to this new reality in order to accurately and efficiently price the grid's energy supply.

 

Curtailment will erode the value of renewable projects for investors, as they will only be able to sell a portion of the energy generated. To improve the profitability of new energy projects, companies need to focus on custom business and technology solutions that address the variability and volatility of renewable energy sources. This may include innovations in energy storage for renewable energy systems, programs that can better forecast energy demand and manage supply fluctuations, as well as adaptable operations to generate value from electricity that would otherwise be curtailed.

 

Mastering the Energy Equation

 

We're in the midst of an energy revolution, one that is steadily transforming the landscape of power generation and distribution. The promise of renewable energy is becoming a reality, but as you embark on your journey to harness the potential of wind and solar power, there are challenges that you must confront to ensure profitability and success.

 

The reality is, the more wind and solar projects that come online, the more likely it is that you'll experience a drop in ROI. When your projects are most productive, they'll face low market prices driven by neighboring wind and solar projects with fixed-price off-takers. This energy oversupply may result in curtailment, which is a signal from grid operators to either reduce generation output or face zero or negative spot prices for the load. Ultimately, this wasted energy translates to lost money for a renewable energy business.

 

To balance the high initial costs of investing in new technologies and infrastructure while remaining profitable, it's crucial to rethink traditional project financing methods. As the market becomes saturated with wind and solar, fixed-price off-takers, net metering, and feed-in tariff systems will become less sustainable for financing large upfront capital costs. One solution will be to consider alternative financing models, such as those resembling "Peaker" plants, where the entire cost of the build is paid for by only a small percentage of the output.

 

Embracing regulatory and policy incentives to move away from hydrocarbons for these projects is essential, as is finding alternative ways to create value from the extra electricity that the grid cannot absorb. For daily fluctuations, utility-scale battery storage will be a good fit, and we are already seeing rapid deployment in places like Australia and California. As the technology improves and costs fall, batteries will play an increasing role in grid management, replacing reliance on hydrocarbon-based fuels.

 

However, batteries alone won't solve the seasonal variation between summer and winter. Storing high levels of power for months at a time is currently neither practical nor cost-effective with chemical battery technology. The first step to addressing this challenge is to focus on increasing transmission capacity between regions. Doing so will help offset environmental conditions between regions and reduce the need for overbuilding and curtailment to achieve reliability.

 

Unfortunately, building high-voltage power lines is a costly and time-consuming process, often fraught with geopolitical challenges and delays. Supporting legislation that increases the success rate of these infrastructure projects will be crucial in expanding transmission capacity for a more reliable grid.

 

Streamline Renewable Energy Projects for Maximum Profit

 

As you look toward increasing the profitability of new energy projects, it's essential to strike a balance between the need for renewable energy resources and infrastructure investments. Here are three key concepts for enhancing profitability while also ensuring a sustainable energy future:

 

1. Embrace the Concept of "Demand on Demand"

Reconsider the issue by concentrating on demand rather than supply, essentially turning the concept of dispatchability upside down. This method establishes a new value chain and presents opportunities for energy-dependent workloads that meet particular criteria.

 

By making use of surplus energy with zero marginal cost, you can carve out a new business niche that boosts the ROI for wind and solar developers if the business can function within the limitations of this future scenario. Prioritize products or services that demand significant energy consumption but can be stored for extended durations, like green hydrogen production or large-scale data processing.

 

2. Prioritize Digital Capabilities and Automation

To effectively respond to excess energy and fluctuating environmental conditions, businesses must be nimble and capable of real-time adjustments. They should prioritize automated and digital processes that can adapt to changes in intra-day electricity costs within 15-minute intervals.

 

Emphasizing flexible, decentralized work models will allow businesses to handle erratic schedules without overburdening their workforce. Additionally, exploring opportunities in high-compute industries such as Generative AI, protein-folding simulations, and data processing can be advantageous due to the potential benefits from real-time energy cost adjustments.

 

3. Invest in Decentralized Infrastructure

Power lines and transmission networks need significant improvements to manage the increasing demand for electricity. However, it's improbable that they will be expanded enough to handle the highest levels of supply. To prevent overloading the grid, we should prioritize constructing decentralized infrastructure near or alongside wind and solar power sources.

 

In this approach, smaller, decentralized energy resources are bundled with value generation technology with the ability to scale economically. Potential opportunities include water desalination, green hydrogen production, and electric vehicle charging stations, which can all benefit from localized energy generation.

 

As you navigate this new energy landscape, remember that both entrepreneurs and intrapreneurs play a role in driving innovation. While entrepreneurs bring fresh ideas to the table, intrapreneurs can leverage their position within traditional companies to champion change and drive the adoption of new business models. By taking these steps and exploring the opportunities within the digital, decentralized, and dispatchable demand space, you can achieve increased profitability while supporting the vital transition to a renewable energy future.